THE EFFECT OF RESEARCH AND DEVELOPMENT INVESTMENT ON FIRMS’ FINANCIAL PERFORMANCE: EVIDENCE FROM MANUFACTURING FIRMS IN TURKEY

Year 2014, Volume: 9 Issue: 1, 23 - 39, 01.06.2014

Hasan Ayaydın İbrahim Karaaslan

Abstract

Following recent literature, we present a model of endogenous firm performance with research and development
(R&D) investment as one of the main mechanisms of firm performance. The purpose of the study is to enhance
the analysis of the variables influencing firms’ financial performance: thus we focus our investigation on the
study of the effect of research and development investment on firm’s financial performance. Return on assets
used as a measure of financial performance. Capital structure, liquidity, efficiency and firm size factors
determining firm performance also are investigated. Manufacturing firms registered Istanbul Stock Market
(BIST) were classified according to the sectoral approach. The sectoral approach is an aggregation of the
manufacturing industries according to technological intensity and based on the Statistical Classification of
Economic Activities in the European Community (NACE) at 3-digit level. The level of R&D intensity served as
a criterion of classification of economic sectors into high-technology, medium high-technology, medium lowtechnology and low-technology industries. Our study evidences a positive effect of R&D intensity on the firm
performance by using GMM system estimators for a sample of 145 manufacturing firms registered BIST for the
2008–2013 periods. This paper gives empirical support to those recommendations from policy makers and
business leaders for maintaining the R&D expenditures especially in high-technology sectors even when facing a
recession.

Keywords

Turkey

THE EFFECT OF RESEARCH AND DEVELOPMENT INVESTMENT ON FIRMS’ FINANCIAL PERFORMANCE: EVIDENCE FROM MANUFACTURING FIRMS IN TURKEY

Abstract

Following recent literature, we present a model of endogenous firm performance with research and development (R&D) investment as one of the main mechanisms of firm performance. The purpose of the study is to enhance the analysis of the variables influencing firms’ financial performance: thus we focus our investigation on the study of the effect of research and development investment on firm’s financial performance. Return on assets used as a measure of financial performance. Capital structure, liquidity, efficiency and firm size factors determining firm performance also are investigated. Manufacturing firms registered Istanbul Stock Market (BIST) were classified according to the sectoral approach. The sectoral approach is an aggregation of the manufacturing industries according to technological intensity and based on the Statistical Classification of Economic Activities in the European Community (NACE) at 3-digit level. The level of R&D intensity served as a criterion of classification of economic sectors into high-technology, medium high-technology, medium lowtechnology and low-technology industries. Our study evidences a positive effect of R&D intensity on the firm performance by using GMM system estimators for a sample of 145 manufacturing firms registered BIST for the 2008–2013 periods. This paper gives empirical support to those recommendations from policy makers and business leaders for maintaining the R&D expenditures especially in high-technology sectors even when facing a recession

Keywords

R&D, innovation, firm performance, generalized method of moments, Turkey

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